Options: Bullish Activity in Limited Brands

By Jud Pyle, CFA, chief investment strategist for the Options News Network

At the risk of sounding like a broken record: the retail sector had a good run throughout the last few months, but it's overheated and a pullback is imminent. Today, we got that pullback after same-store sales were announced. But one investor is bucking the trend and has become bullish on Limited Brands (LTD Quote).

Looking at the July 12.5 puts, around 11:20 a.m. EDT, an investor sold 7,000 contracts at 95 cents per contract with the stock trading around $12.63, making these puts slightly out-of-the-money. These puts are home to current open interest of 246, implying that today's trades were sold to open and will translate as new open interest tomorrow. It's noteworthy that out of the approximate 39,000 options traded in LTD so far today, more than 11,300 of them are July 12.5 puts. Normal daily volume in LTD options is around 29,000.

The bullish investor in question is calling a bottom in LTD shares, and needs LTD stock to close higher than $11.55 (the strike plus/minus the premium collected for the puts) come July expiration to retain any of this premium. LTD shares dropped 37 cents to $12.76 in afternoon trading. LTD stock has rallied more than 100% since reaching a 52-week low on March 6 when these shares sank to $6.26.

The investor made a bullish bet despite worse-than-expected same-store sales numbers released this morning. Retail store openings fell 7%, which missed average analysts' estimates by about 4.5%, compared to the 1.1% gain last year.